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With winter temperatures bearing down across the Northeast, the price of natural gas rose significantly over coal between January and March, making coal-fired units more competitive, the PJM Interconnection said Thursday.

Compared with 1Q2013, coal-fired output climbed by 18.6%, with gas-fired output up 5.8%, according to the 2014 State of the Market report by PJM's Market Monitoring Unit (MMU). PJM manages the grid for 13 Northeast and Mid-Atlantic states and the District of Columbia.

The MMU analyzed measures the market structure, participant conduct and market performance for 1Q2014 and concluded they were competitive.

"The extreme winter weather conditions in the first three months of 2014, and the resultant stress on the markets, revealed the fundamental strength of the PJM markets as well as areas that need improvement," said Joseph Bowring, independent market monitor.

Energy prices in the first three months of this year on average were set by units operating at, or close to, their short-run marginal costs, except during the high-demand hours of January (see Daily GPI, Jan. 28). The load-weighted average cost of energy (LMP) increased 148.5% in the period to $92.98/MWh from year-ago prices of $37.41. Energy net revenue for all types of units soared from 1Q2013 by 377% for a new gas-fired combined cycle plant and 637% for a new coal plant.

MMU recommended, among other things, that PJM create and implement "clear, explicit and detailed rules" that defined under what conditions it would purchase emergency energy, how it would recall energy from PJM capacity resources, and how it would deal with new energy exports from capacity resources.

The LMPs of more than $1,800/MWh set on Jan. 7 "were potentially a result of the way in which PJM modeled zonal (not nodal) demand response as a margin resource," the MMU said. It recommended PJM explain how LMPs are calculated when demand response is margin.

Managing Editor | Houston, TXCarolyn Davis joined the editorial staff of Intelligence Press Inc. in Houston in May, 2000. Prior to that, she covered regulatory issues for environmental and occupational safety and health publications. She also has worked as a reporter for several daily newspapers in Texas, including the Waco Tribune-Herald, the Temple Daily Telegram and the Killeen Daily Herald. She attended Texas A&M University and received a Bachelor of Arts degree in journalism from the University of Houston.
carolyn.davis@naturalgasintel.com

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